Baseball owners with media properties can skirt the league's revenue-sharing system by deflating their teams' balance sheets.

Yankees fans were the big winners when Cablevision
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) and the YES Network settled a bitter TV-rights dispute last month. Up to 3 million Cablevision homes in the New York metro area will now have access to every game of the season--if they pay an extra $2 a month for the privilege--featuring the most star-studded, highest-valued sports franchise in history. The Yankees' value rose 13% to almost $850 million, a new high, in FORBES' latest annual rankings of team valuations.

This should be great news for Major League Baseball. Seeking to bridge the ever-widening gap between the five or so richest teams and small-market, lower-grossing rivals, the league will force the richies to hand over about $260 million this year for its revenue-sharing plan.

But don't expect the poorer teams to get their fair share. The new YES pact will let Yankees owner George Steinbrenner effectively divert millions of dollars and shelter it from the revenue-sharing plan. That's because Steinbrenner controls 60% of YES, the Yankees' new exclusive cable channel. This year YES will bring in an estimated $200 million from cable operators and advertising, most of it derived from Yankee telecasts. The bulk of the proceeds will stay in the pockets of Steinbrenner and his YES partners at Goldman Sachs Group.

More teams may take the same approach, reporting lower fees for revenue sharing while raking in higher sums through owner-controlled cable channels. The Red Sox do it, the Los Angeles Dodgers do it and so do the Atlanta Braves, the Chicago Cubs and the Toronto Blue Jays. The Twins will launch their network next year. The Houston Astros and the Chicago White Sox may do the same.

The new cable channels could make the richest teams even richer, increasing the disparity between them and the weakest teams in the league. The five most valuable clubs--the Yankees, New York Mets, Red Sox, Dodgers and Atlanta Braves--took in an average of $46 million in local media revenue last season, compared with a per-team average of $22 million league-wide. That is why these five teams are worth an average of $541 million, compared with an average of $295 million for all teams.(Baseball clubs are valued at two to three times revenue.)

Baseball Commissioner Alan (Bud) Selig first imposed the revenue-sharing plan in 1993 as a way to fix baseball's broken economic system. He says the financial disparity between top-tier and bottom-tier teams has taken much of the competition out of the sport. The Yankees pulled in $223 million in revenue last season--almost double the league average--even after paying $29 million into the revenue-sharing scheme. Their fat checkbook lets them bid enormous sums for the best players, a key reason they are the only club to capture more than one championship in the past decade (the Bronx Bombers have won four in ten seasons).

Baseball officials insist revenue sharing isn't being undermined. "For purposes of revenue sharing," says Robert Manfred, baseball's labor lawyer, "we value all TV deals on what they would get in an arm's-length transaction. And for those deals where there is equity in lieu of cash, we include the value of the equity."

The real numbers suggest otherwise. Last year YankeeNets, the Steinbrenner-owned holding company that controls the Yankees, basketball's New Jersey Nets and hockey's Devils, created YES (Yankees Entertainment & Sports). Last season YES reportedly paid the Yankees at least $52 millionfor 130 games. But that fee grossly understates the value of the cable rights, argues Andrew Zimbalist, a professor of economics at Smith College in Northampton, Mass. and author of May the Best Team Win. He points out that Goldman Sachs and other investors paid $340 million to buy a 40% stake in YES in 2001, giving YES an implied market value of $850 million.

Zimbalist estimates that last year YES raked in a total $170 million ($130 million in subscriber fees, ad sales of $30 million and $10 million from games sold to DirecTV and WCBS TV in New York). Take out $40 million for production costs and Nets games (YES won't carry Devils games until 2007), and YES netted $130 million in Yankees-related revenue. Subtracting $10 million in profits for Goldman Sachs
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) still leaves the Yankees with $120 million--$68 million more than the $52 million they received for local cablerights. This year, with Cablevision onboard, YES should generate an additional $40 million or so in revenue, most of which won't go into the league pot. Chief Executive Leo Hindery Jr. of YES did not return calls for comment.

In 1993, the first year of revenue sharing, the richer teams gave $20 million total (1% of baseball's overall revenue) to the poorer teams. By 1996, as part of a new contract between players and owners, the top clubs forked over $50 million, or 3% of aggregate revenue. By 2002 the pot had grown to $169 million, 5% of baseball's total revenue. This season the wealthier clubs will give around $260 million to the low-revenue teams. By 2006, the last year of the contract, Selig believes the richer teams will transfer well over $300 million to their poorer rivals.

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